Credit analysis for formulation of optimum credit policy, Financial Management

Assignment Help:

Q. Credit Analysis for Formulation of Optimum Credit Policy?

Credit Analysis: - Credit Analysis is made to estimate the credit worthiness of the customers before making credit sales. Decision of sale on credit is taken merely on the basis of credit analysis. The firm require not follow the policy of treating all the customers equal for allowing credit. Every customer may be fully examined previous to offering credit terms to him. Credit estimation involves two steps:

a. Obtaining Credit Information: - Credit Information concerning every customer is gathered from different sources. Meeting credit information involves cost. Cost of collecting information must be less than the expected profit accruing from it. Credit information is able to be obtained from internal as well as external sources.

  • Internal Sources: - As internal sources of credit information firm is able to require its customers to fill up forms giving details about their financial activities. They may as well be asked to furnish trade references with which the firm is able to have contact to obtain the required information.
  • External Sources :- Credit information is able to as well be obtained externally from:

(i) Financial Statements: - Financial statements specifically Balance Sheet and profit & loss a/c are major source of credit information.

(ii) Bank References: - Bank of the customer is as well a useful source of credit information about the customer. Firms acquire credit information from customer's bank with the help of its own bank. Information such as loan taken by him, usual balance of customer, any default in repaying such loan etc. is able to obtain from the bank of the customer.

(iii)Reports of Credit Rating Agencies: - Credit rating agencies gather information about the financial and managerial aspects of large number of business concerns from a variety of sources such as newspapers, market, private investigation etc.

(iv) Bazaar Reports: - Credit information about the customer can as well be maintained from the business concerns in the same trade or industry.

(v) Other Sources: - Other sources from where credit information can be obtained are journals, trade directories, government revenue records such as income tax returns, sales tax returns etc.


Related Discussions:- Credit analysis for formulation of optimum credit policy

Structure and organization of treasury , I am looking for assignment help o...

I am looking for assignment help on the topic Structure and Organization of Treasury. It would be great if anyone help me.

Explain financial management and functional areas , 1.  Discuss the various...

1.  Discuss the various techniques of cash management for an efficient working capital Management. 2.  Discuss the MM Hypothesis of Capital structure and its importance in corpo

Liquidity risk, An investor, who wants to sell a bond even before it ...

An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true

Two-for-one stock split, The equity accounts for Hexagon International are ...

The equity accounts for Hexagon International are as follows: a.    If Hexagon stock currently sells for $50 per share and a 20% stock dividend is declared, how many new s

Evaluate the profitability and sales, a) Stockpiles refers to the accumulat...

a) Stockpiles refers to the accumulated (or excess level of) supply Ford motor vehicles, i.e. too much production given the level of demand. The purpose is to prevent possible shor

Saving and lone assocition, what is saving and lone function in ethiopian c...

what is saving and lone function in ethiopian context

Government securities , The RBI, on behalf of the government, issues ...

The RBI, on behalf of the government, issues all T-Bills and Government dated securities. Being risk-free securities, they set the benchmark for the interest rate

Capital asset pricing model (capm), Capital Asset Pricing Model (CAPM) ...

Capital Asset Pricing Model (CAPM)   Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r

What is the meaning of deviations, What is the meaning of Deviations De...

What is the meaning of Deviations Deviations must be recorded and investigated regardless of the amount involved and then assess whether deviations are isolated departures or i

Explain discounted cash flow analysis, Discounted cash flow analysis is th...

Discounted cash flow analysis is the term employ to describe the technique whereby the value of future cash flows is discounted back to a present value so that the monetary values

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd